Forming Startups with MBA Classmates

One of my students sent me this HBR blog (recommending that business school classmates not start companies together) and asked for my thoughts.  I thought I would share them here – in case others are interested:

The Article: http://blogs.hbr.org/2013/11/dont-start-a-company-…

My Opinion:

I think that many of the the points made in this blog are valid – but I don’t think that they are exclusive to business school.

People start companies all of the time with individuals whom they only know along a single dimension (friends, co-workers, family etc.). I would argue that all of these situations, in one form or another, expose you to many of the same risks that the author points out about b-school classmates.  Starting a business with someone is much like getting married.  And like marriage you would ideally want to get a sense for multiple dimensions of that individual before you commit to a long-term, risk-sharing and financially impactful relationship (values, financial views, work-life balance preferences, acceptable outcomes, hiring others, strategic direction etc.)

That being said – in any of these situations, I think that its important to talk about these important things early on in the process of starting a business. Get things like personal risk profiles, biases, preferences for exit, company culture, individual financial situations out on the table. The sooner that this tough (and often awkward) stuff is discussed the better.  Outputs and understandings can then be woven into founders agreements and other charter docs that help prevent issues from arising later on – or if they do – have clearer outcomes.

Its better to have tough conversations about important topics early (even though they may be a bit uncomfortable and seem like a ways-off from being an issue).  The alternative could mean the demise of the company, friendships and even family ties.

David

MBAs in the Valley

A Kellogg student recently emailed me the following question: “I subscribe to Quora’s weekly digest and came across the question: “Are top MBAs looked down upon in Silicon Valley? If so, why?” Most responses said  they were. What are your thoughts, Professor?”

Here is the response I gave:

On the question you posed on how MBAs are viewed in the Valley, I think some of the responses on Quora were quite insightful. I would say, when I was in the Bay Area scene anyway (mid-90’s through 2007), there may have been the perception that fancy MBA’s (i.e. top five or so schools) will:

  • Be really expensive (“Hey, maybe I hire two associates from Cal undergrad instead!”)
  • Be hard to manage — they’ll posture that they know it already, they won’t take feedback well, etc.
  • Bother you within 9 mo. in the new job about getting promoted
  • Will not offer a pointed perspective—instead will try to cover all the bases, hiding behind jargon, decks and frameworks. (“And another way of looking at this is…” Meanwhile, Rome is burning…)

Did I encounter any of the above while in the Valley, working with MBAs?” Yes I did, BUT, getting an MBA from a top school says a lot – about motivation, smarts, etc. – and I definitely hired a lot of sharp MBAs over the years (and hired plenty of Kellogg MBAs because of their well-earned reputation for having a broad-based skill set and working well in teams). Nonetheless, I must admit that I was on a watch-out for these tendencies.

My advice to you fancy MBA types (and remember, I too was one back in the late 40’s) is to counter this perception by:

  • Showing humility. Don’t act like you know it all. You don’t. I certainly don’t—I’m still trying to figure out the questions. Bo don’t. Jack Welch don’t. Even Buddha don’t—well maybe Buddha do…So don’t brag and self-promote. People will realize you’re good quite quickly. Every kid in high school knows who the smart kids are…the same goes in business.
  • Listening well. This goes hand-in-hand with humility. Don’t act like you’re listening when in fact you’re just re-loading. Don’t do the “yeah-but” on people when they’re talking. Just listen openly and actively, asking clarifying questions along the way. Try not to strive for congruence too soon– just listen and mull over what you’re hearing without responding with a declarative statement. Good listening is so rare! Those who do it well enter some sort of kingdom of goodness.
  • Placing an emphasis on learning. You do this by reaching out to others, listening and asking questions. (Use lunch as a time to ask people out from other departments to understand their perspectives and learn about their priorities.) You also do this by digging into the guts of the business. Learn how to do data pulls in the BI Tool. Comb over the 10K, the balance sheet and the P&L and know the latter at a line item level. Dig into the secondary data — Comscore/Forrester/Nielsen, etc. Examine the conversion funnel in Omniture. Listen in on analyst calls. Very few will do these things. You will.
  • Leading by example. Be of service to the business. Put your head down and do stuff that needs doing–don’t say stuff. Always move toward action. I love the word “Activate!” I think of “Wonder twin powers, activate!” (Sorry—old person cartoon reference.) Your good work will speak for itself. Every once in a while your personal brand may need a little nudge in terms of brand visibility, but not as often as you’d think…
  • Having a point of view that’s measured and considered, express it succinctly, then stop talking.

With that, I’ll stop talking.

Carter

 

 

The Starting Point : The Science of New Venture Creation 

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(Photo: State Library of Victoria)

The way that we think about new venture creation in our class at the Kellogg School of Management is a lot like basic science.

In chemistry for instance, researchers begin with a series of hypotheses (educated guesses) about what they believe to be scientific truths (Chemical A will react with Chemical B in the following way and will result in the best drug for male pattern baldness ever!).  Our scientist then designs and runs a series of experiments to discover if his/her hypotheses are in fact…well…”fact”.  Based on the outcome of the experiment, the researcher will either proceed down the originally-planned development path to hair-growth-glory, or create revised hypotheses informed by the learnings from the last round of experiments. This cycle then repeats itself until either the researcher discovers a desirable, evidence-based answer (maybe the one they are looking for, but sometimes not*), or decides to throw in the towel and try again down the road.

Our belief is that effective new venture discovery (the fuzzy front–end of creating a new business) is very much the same process as scientific discovery.

Startups often begin as a bunch of hypotheses about what an entrepreneur believes to be a “commercial truth”. – a hypothesis about a certain customer problem, an idea for a solution, a belief about how money will be made, how users will be reached etc.  The issue is that few first-time entrepreneurs recognize that the things they believe to be truths are nothing more than guesses or assumptions, often laden with biases from a founder’s own personal experiences, but not necessarily indicative of the market at large.  As a result – much like in science, the best way to validate the core hypotheses behind a new venture is to systematically design and execute a series of experiments to help learn the real commercial truths around a venture.  And just like in the case of our chemist, depending on the outcome of our experiments, the entrepreneur will either revise the venture’s underlying hypothesis to reflect what has been learned as a result of the testing (and repeat the cycle again…and again) or, with singed eyebrow, decide that the safest place might be away from the Bunsen burner.

What’s that you say?  “What types of experiments can an entrepreneur run to discover commercial truths early on in the process of creating a new venture?”  Glad you asked!  Future posts on BNT will cover this topic in detail – so stay tuned!

– David + Carter

 * This is a key point – particularly in venturing.  Often, it’s unexpected discoveries in building a new business model that generate the most valuable insights for a startup.  Examples include lots of billion-dollar companies we know today: Groupon, Google, Facebook – even blockbuster drugs like Propecia (coming fill circle on the pattern baldness reference) began their life as ventures focused on different problems then what they evolved into.  It was the process of experimentation, iteration and discovery that let these companies to their eventual “Eureka!” moments where problem, solution and business model all gelled together.

For more on this topic check out the blogs of some of these luminaries of Customer Development and Lean Startup.

“Proprioception”

Carter here.

In the spirit of SNL’s Deep Thoughts by Jack Handy, I’d like to share an interesting word I just ran across—“proprioception.” Literally, it means an awareness of the position of one’s own body. Figuratively, it can beg an examination of some worthwhile questions such as: “Am I self-aware right now? Am I well-oriented to the situational context in which I find myself? Am I in touch with what I’m projecting to others?” The word makes me think of being both the participant & observer simultaneously—having a healthy detachment from the moment, as I’m experiencing the moment. (This is stuff the Buddhists and Stoics advise us to do to maintain our equanimity.) Huh?—earth to Carter—what does this have to do with entrepreneurship? Here’s just one example of its application…In my venture capital job, on quite a few occasions, I’m at the receiving end of a pitch where entrepreneurs deliver a Phil Spector Wall-of-Sound monolog, not allowing me the opportunity to ask questions about their venture and explore ideas with them. Pitching is a dance and they don’t include me as their partner. In other words, the entrepreneur wants so badly to deliver their value proposition message and communicate why I should invest, that they lose their sense of proprioception.

Isn’t that a great word?

P.S. Note the Resources+ Tools section, which we’ve loaded up and will discuss more in days to come…